FBI Probes Trading as KPMG Quits as Herbalife, Skechers Auditor

In a case that could shake one of the world's largest accounting firms, KPMG said it resigned as auditor of two U.S. companies as the FBI on Tuesday began investigating insider trading allegations involving a former KPMG senior partner.

The companies, nutritional products group Herbalife Ltd and footwear maker Skechers USA Inc., said separately that KPMG had quit as their auditor in connection with alleged leaks of nonpublic information.

The FBI's Los Angeles office is investigating the matter, according to a source familiar with the situation.

Shares of Herbalife were down 4.1 percent at $36.81 and Skechers shares were up 2.6 percent at $22.07 on Tuesday afternoon.

A KPMG spokesman declined to comment on Tuesday morning and could not be reached at midday.

Herbalife said in a statement that KPMG's resignation had nothing to do with the company's accounting practices or the integrity of its management, issues called into question by the high-stakes drama between hedge fund titans Bill Ackman and Carl Icahn over the company.

KPMG said in a statement late on Monday that it had resigned as the outside auditor of two clients due to the actions of a senior partner, who was in charge of the audit practice in its Los Angeles business unit. It said the unidentified partner provided inside information about its clients to someone who had used that information in stock trading.

"The partner was immediately separated from the firm," KPMG said in its statement. "This individual violated the firm's rigorous policies and protections, betrayed the trust of clients as well as colleagues, and acted with deliberate disregard for KPMG's long-standing culture of professionalism and integrity."

KPMG is the smallest of the Big Four global accounting and audit firms. It reported 2012 revenue of $23 billion, up 1.4 percent from the year before.

The other three firms are PricewaterhouseCoopers, Deloitte and Ernst & Young. All are U.S.-based and operate affiliate networks around the world.

The outgoing chairman of the U.S. Securities and Exchange Commission, Elisse Walter, declined to comment on KPMG's announcement when asked by Reuters on Tuesday.

Ackman and Icahn were not immediately available for comment.

Any controversy over KPMG's dealings could hurt the firm's reputation.

In 2005, KPMG narrowly avoided a criminal indictment by agreeing to pay $456 million in a deferred prosecution settlement with U.S. authorities over its sale of tax shelters. Three years earlier, smaller rival Arthur Andersen collapsed over its auditing work for energy company Enron Corp.

In addition, KPMG partners were the only ones so far to have been sued by the SEC in connection with the global financial crisis.

Bill Ackman, who has a short position in Herbalife, suffered a blow on Monday when the J.C. Penney Co Inc chief executive he handpicked, Ron Johnson, was ousted by the board.

In a case that could shake one of the world's largest accounting firms, KPMG said it resigned as auditor of two U.S. companies as the FBI on Tuesday began investigating insider trading allegations involving a former KPMG senior partner.